Amid changing economic and geopolitical dynamics, fund management has become a challenging job as equity as an asset is under severe pressure. Dipak Mondal caught up with Aashish P Somaiyaa, CEO, WhiteOak Mutual Fund to discuss impending US economic slowdown, its India effects and more. Excerpts:
What’s the current outlook for the US and emerging markets?
US exceptionalism is starting to show signs of fatigue. While the Magnificent Seven stocks are holding the market up, broader data suggests a slowdown. US GDP growth forecasts are being marked down. Looking ahead—into late 2025 or early 2026—I believe the trend will start favouring emerging markets again. Over the past five years, the US delivered 15–16% CAGR in dollar terms, India about 13–14%, but other EMs didn’t fare as well. That’s changing now.
Historically, we've seen cycles. From 2000–2010, emerging markets outperformed while the US lagged due to events like the tech bubble, 9/11, Gulf War, and Lehman crisis. From 2010–2020, it reversed—US dominated, EMs underperformed. It’s likely we’re entering a reversal again where US performance normalizes, and EMs gain favour.
Will India benefit if the US slows down?
Yes, in the long run. It’s not about a US collapse but rather a normalization. US markets have grown so rapidly, especially tech-heavy sectors, that a correction is natural. India stands to gain in the rebalancing phase.
Your portfolio seems bullish on the consumption theme. Why is that, given it has underperformed in recent years?
True, but we’re focused more on discretionary consumption rather than FMCG. That includes sectors like white goods, fashion, eating out, tourism, and travel. It’s linked to rising per capita income. Even if only the top 10% benefit from rising income, that’s still a huge number of people in India.
It's all tied to affordability and formalization. We’ve seen strong returns from hospitals and diagnostics—not directly consumption, but driven by rising affordability and formal employment. Whether it’s health insurance, organized retail, or people being more selective about brands—it’s all linked to the same shift: unorganized to organized, unbranded to branded.
So, you're not very bullish on FMCG?
FMCG has its challenges—penetration levels are already high, and they're facing heat from DTC (Direct to Consumer) and natural brands. Distribution is also evolving. That’s why we lean toward discretionary consumption, which aligns more with India’s income story and changing lifestyle trends.
While sub-sector weights might shift, the overarching theme of discretionary consumption will likely remain significant in our portfolio for the foreseeable future.
Financials is a major sector for most mutual funds and PMS. Do you see any issues in the financial sector in 2025, especially concerning asset quality or potential reversal of the credit cycle?
If you look at our portfolios, you will see either big banks, some NBFCs, or segments like insurance, asset management, or wealth management. So, while our exposure to financial services is high, it's led predominantly by big private banks or even something like State Bank. We’ve consciously avoided second-tier or mid-cap banks.
Right now, RBI’s stance on liquidity management and interest rate direction is turning more dovish. This benefits NBFCs. Think back to 2014-16 — that was a high-liquidity, low-rate environment where NBFCs thrived, especially since many banks weren’t lending due to being under prompt corrective action.
Also, RBI has relaxed norms for banks to lend to NBFCs, further supporting this environment. So, it’s an environment where NBFCs may do well.
How should someone approach direct equity investing, especially if they aren’t professional investors?
Start from what you know. If you’ve worked in a particular industry, begin your research there — you understand the value chain, competitors, trends.
Ask yourself: Do I understand the customer, supplier, competitor? Can I speak to people in the business and validate my view?
People often ignore this and jump into hot themes. That’s where mistakes happen. If you can’t build a proper portfolio — and 99% of people can’t — either avoid direct equity or invest where your competence lies.
China recently introduced a rule: if a fund manager underperforms by 10%, their compensation gets cut by 50%. Your thoughts?
The concept isn’t fundamentally wrong. There are already performance-linked fee models in some vehicles. But then questions arise — what's the right benchmark? Why did underperformance happen?
Sometimes underperformance is due to risk management. From 2020-24, outperformance came from PSU, railways, defence, and cyclicals. If you were in private banks, IT, pharma — even though they are high ROI, free cash flow-generating — you underperformed.
In such markets, managers who stuck to quality looked bad. But in the last six months, those same managers are top performers again.
So, imposing a strict performance penalty may lead managers to hug the benchmark or take unwarranted risks. There needs to be room to underperform tactically for long-term outperformance.